US consumer spending increases a strong 0.4 in June

Consumer spending rose a solid 0.4 percent in June after an identical increase in May and a 1 percent surge in April, the Commerce Department said Tuesday. The strength in June came from a surge in spending on nondurable goods.

By
Martin Crutsinger, Associated Press /
August 2, 2016

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Shoppers walk through Cherry Creek Mall in Denver. Consumer spending remained a bright spot for the US economy in June, increasing 0.4 percent for the second straight month, the Commerce Department said Tuesday, Aug. 2, 2016.

Brennan Linsley/AP/File

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American consumers turned in another strong month of spending in June despite a decline in spending on autos.

Consumer spending rose a solid 0.4 percent in June after an identical increase in May and a 1 percent surge in April, the Commerce Department said Tuesday. The strength in June came from a surge in spending on nondurable goods, which offset a drop in spending on autos.

Economists say they think solid gains in hiring will support future growth in consumer spending, which accounts for about 70 percent of economic growth. The economy expanded at a modest 1.2 percent annual rate in spring. Analysts say they expect double that growth rate in the second half of 2016.

The 1.2 percent growth in the gross domestic product in the April-June quarter was far below what economists had expected. A strong increase in consumer spending during the quarter was offset by weakness in other areas, including declines in business investment and the restocking of inventories.

Economists say they think that both those drags will lessen in the second half of this year and that consumer spending will remain strong. Spending grew at a 4.2 percent annual rate in the spring, its strongest performance since late 2014.

With spending up in June at a faster pace than incomes grew, the saving rate slipped to 5.3 percent of after-tax income, down from 5.5 percent in May. The June figure was the smallest since an identical 5.3 percent in March 2015.

Inflation as measured by a gauge tied to spending increased 0.9 percent in June, compared with a year ago, while core inflation was up 1.6 percent. Both gains were below the Federal Reserve's 2 percent target for inflation.

The Fed left a key interest rate unchanged at its meeting last week but upgraded its assessment of the economy, raising expectations the central bank might hike rates as soon as the next Fed meeting in September. But the weak GDP report on Friday has raised doubts about that timetable, with many analysts now thinking a rate hike will not occur until December.